Sprint Nextel to cut 4,000 jobs as customers flee

Sprint Nextel s, struggling to keep afloat amid a crush of customer defections, on Friday announced it was cutting 4,000 jobs.

The reduction is the first of what is expected to be a series of moves by the new CEO, Dan Hesse, as he tries to save the troubled wireless carrier. Last January Sprint announced it was cutting 5,000 jobs. The company currently has 60,000 employees.

Most shocking to Wall Street, however, was the scale of customer losses, also announced Friday: 885,000 during the fourth quarter alone.

Most of the losses came from the Nextel side of the company, says Jan Dawson, an analyst with Ovum. In its news release, Sprint did not break down the customer losses by brand.

Sprint said it lost 683,000 "post-paid," or subscription customers, and 202,000 pre-paid customers during the quarter, which is traditionally the strongest for cellphone carriers.

Last year Sprint lost 1.2 million customers. "It's going to be worse in 2008," predicts UBS analyst John Hodulik.

Sprint's "churn" — shorthand for the number of people who drop off each month — was also ugly: 2.3%. Verizon's churn is almost half that, 1.2%; AT&T isn't far behind.

As for those 4,000 job cuts, "It's a good start." Hodulik predicts that more cuts would be needed.

Sprint, the No. 3 wireless carrier behind AT&T t and Verizon Wireless vz, has struggled since it merged with Nextel in 2005. The $70 billion merger, engineered by Hesse's predecessor, Gary Forsee, was supposed to create a wireless behemoth that could steamroll the competition while pushing boundaries in wireless.

Instead, Sprint stumbled as it tried to blend the starkly different cultures of the two companies while trying to reconcile their incompatible wireless technologies.

Sprint wound up alienating customers, who bolted by the thousands. Sprint's dismal performance eventually cost Forsee his job. Hesse, a former AT&T executive with long ties to wireless, was recruited from a Sprint spinoff, Embarq, to replace him.

Dawson says it's not too late to save Sprint, one of the grand names in global telecommunications, "But they need to make some big changes, and do it quickly."

"The challenge for them is to figure out how to save the Nextel customers," says Dawson and move them to Sprint's network "rather than let them walk out the door."

AT&T and Verizon, meantime, continue to add almost 2 million new subscribers each quarter. Many of those additions are coming from Sprint.

The news pounded Sprint's shares, driving them down by 26% in afternoon trading.

In addition to job cuts, Sprint said it planned to eliminate more than 4,000 third-party distributors and close 125, or 8%, of Sprint-owned retail locations. Sprint noted that it currently has 20,000 distributors, including 1,400 company-owned stores.

The reductions, Sprint said, should save the company $700 million to $800 million on an annualized basis by the end of 2008. Payroll reductions are expected to be completed by the first half, Sprint added.

Sprint is expected to report its fourth-quarter and 2007 financial results on Feb. 28.